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Many would-be Internet entrepreneurs think they've got it all figured out. Here's a common five-step plan:

Make something cool

Offer that coolness for free

Charge for a premium version

Profit

Sell out and buy an island

It’s called freemium, a portmanteau of "free" and "premium". The idea is that the free version of your software, game, or web service makes all that icky marketing stuff easy -- word gets around, people love it, then people give you money for the premium version that they love even more.

Freemium is fantastic when it works. Problem is, it doesn’t work all that often.

Let me tell you a quick story about the British band New Order that helps explain why.

New Order and The Haçienda

In the early 80s, the members of New Order were involved as partners with Factory Records and Tony Wilson in the hugely popular Haçienda club. Opened 30 years ago this month, the Haçienda was ground zero for the birth of rave culture and the "Madchester" music scene.

Unfortunately, for all its popularity, the Haçienda was a money pit. A complete financial disaster.

New Order bassist Peter Hook claimed that New Order would have been better off if they’d given ten pounds to everyone who ever came to the Haçienda, sent them home, and not bothered with the club at all. The band essentially subsidized the club’s expensive operations out of record sales.

After a terribly slow start, Tony Wilson decided what the club needed was a breakthrough in the mainstream Manchester youth scene. And that’s what it got, for better or worse.

The definitive spark was the drug Ecstasy. The feel-good glow of MDMA allowed both black-clad intellectuals and the Manchester working class to join together as a synchronized collective, an audience that cheered not a band, not a record, but the DJ who mixed songs and sounds together into a seamless, thumping serenade.